Lenders Mortgage Insurance (LMI) is an insurance policy protecting the lender, not the borrower, if a borrower defaults on their mortgage. It’s typically required when purchasing a property with a deposit of less than 20% of the property value.
As of December 2025, LMI costs in Melbourne are calculated as a percentage of the loan amount, and vary depending on the loan-to-value ratio (LVR) – that is, the size of the loan compared to the property’s value. Currently in Melbourne, with a median dwelling value of around $823,495, a buyer with a 5% deposit (95% LVR) could face LMI premiums ranging from approximately 0.5% to 2% of the loan amount. This translates to a potential cost of $4,117 to $16,469 on an $823,495 property. Premiums are usually capitalised – added to the loan amount – meaning buyers are financing the cost of the insurance. In the Eastern Suburbs, where property values are often higher, LMI costs will naturally be greater. It’s important to realise that LMI isn’t a one-off fee; it’s an ongoing premium factored into your repayments. Fletchers agents frequently encounter buyers navigating LMI, particularly first home buyers and those entering the market in 2026.
LMI is a significant cost for many Melbourne buyers, and understanding its implications is crucial when considering property purchase options.